Oregon Public Broadcasting

The story out of most state capitols these days is the same. Despite a recovering economy, revenues are lagging and budgets remain in the red.

In Washington state, there's a lot of talk this year about eliminating so-called tax loopholes. But state lawmakers are powerless to close one of the biggest loopholes of them all.

It's the hundreds of millions of dollars states like Washington lose in sales tax revenue to online and catalog sales. Austin Jenkins explains.

At Robi's Camera store in Lakewood, Washington, salesman Winfield Giddings is showing off a $1300 Pentax.

Camera salesman Winfield Giddings talks with a customer at Robi's in Lakewood, WA

Winfield Giddings: "Got the vibration control in the body and you have all the other manual modes and the video just like you do on your Nikon."

Customer Doug Brown says he patronizes camera shops like Robi's because of one thing.

Doug Brown: "You get service. And people aren't willing to pay for that nowadays until something breaks on them."

Tod Wolf is Robi's operations manager. He says it's hard to compete as a bricks-and-mortar specialty shop in this world of e-commerce. His biggest frustration: people come into the store, milk the sales staff for their expertise and then go home and buy the camera online where they pay no sales tax.

Tod Wolf: "And when they come and take it and use it at home to get something for nothing, we've come to call it intellectual theft."

Wolf would like to see a level playing field where all merchants have to collect state sales tax at the point of purchase.

If there's an evangelist in the Washington state legislature for capturing sales tax lost to on-line purchases, it's Representative Ross Hunter.

He's a Democrat and chair of the House Finance Committee. He's also a former Microsoft guy whose dad was an accountant.

Ross Hunter: "We lose half a billion dollars a year in sales tax that people legally owe, but they don't pay because they buy something from an out-of-state retailer who is not required to collect the sales tax for us."

Actually, the Department of Revenue estimates it's more like $400 million that state and local governments are missing out on each year. But that number is projected to grow to that half-billion dollar mark by 2012.

The way it works now, explains Representative Hunter, is you and I are on the honor system to pay the sales tax.

Austin Jenkins: "So when my wife and I buy diapers on Diapers.com and they're not charging us sales tax?"

Ross Hunter: "There you go, there you go."

Austin Jenkins: "And if I don't is Ross Hunter going to come handcuff me or is this my honor and my morals, what's at work here?"

Ross Hunter: "There's something called use tax which you now are responsible for paying and I'll be talking to the Director of the Department of Revenue about this."

Austin Jenkins: "My wife is going to kill me."

The reality is the state has no way to go after individuals -- unless they're dumb enough to broadcast they're tax cheats on the radio -- or, says Department of Revenue spokesman Mike Gowrylow, someone turns them in.

Mike Gowrylow: "Sometimes we get calls on Monday morning from a neighbor to somebody who was bragging over the weekend that he bought all of his furniture or stereo stuff over the Internet and didn't pay any sales tax and you're a fool if you don't do the same thing. Well people who pay sales tax sometimes get a little upset by that and call us up. And we do investigate that and bill people."

But that's the rare case. Representative Hunter thinks it's time our tax laws caught up to the 21st century borderless economy.

Austin Jenkins: "Why don't you just close that loophole?"

Ross Hunter: "Well, closing that loophole requires Congress to act."

Austin Jenkins: "You can't do it as a state legislature?"

Ross Hunter: "I can't require a business in Maine to collect sales tax from sales in Washington state."

So says the U.S. Supreme Court. Over the past decade, Washington and 22 others states have passed legislation to conform with the Streamlined Sales Tax initiative.

It's an effort to simplify the tax patchwork across the states and make it easier for retailers to collect sales tax.

The idea is if the states get themselves on the same page, Congress will then act.

Maureen Riehl is with the National Retail Federation. It supports federal legislation to put all merchants on the same playing field. But Riehl says major political hurdles remain.

Maureen Riehl: "We're looking at gridlock in Congress of monumental proportions. It being an election year also gives people in Congress trepidation about anything even remotely controversial. And this is a controversial piece of legislation."

Among the chief opponents is eBAY. Brian Bieron is a senior lobbyist for the on-line auction website. He notes that today fifteen of the top 20 e-retailers already charge sales tax on each purchase because they also have a bricks-and-mortar presence in the states.

These brick-and-click retailers -- as they're often called -- include Wal-Mart, Target, and Sears. By comparison, Seattle-based Amazon.com tacks-on sales tax in only five states including Washington.

eBAY's Bieron disagrees a blanket mandate to charge sales tax would level the playing field. He says it would be an undue burden on small business owners -- like the people who auction their wares on eBAY.

Brian Bieron: "We are not advocating any change in law. We actually think this is largely self-correcting.  However, if the Congress were to move in the direction of wanting to expand sales tax on the Internet, then our position would be very clear."

That is that small businesses be exempt. eBAY merchants probably don't have to worry for now as the issue stalls in Congress. But the political dynamic could change over the next couple of years as federal stimulus money runs out and states become desperate for a new source of cash.

Online: http://www.streamlinedsalestax.org/